The Financial Times’ great Alphaville division held a semi-quasi-formal-ish CFA exam meme contest, in which our man Dutch Book participated. Result: Silver medal (although I think he should have easily won the gold with his submission!). Stone Street Advisors: Winners at the research and meme game. (non-official motto).
Here’s Dutch’s second-place submission:
Congratulations to Dutch Book & best of luck on the exam, which he’ll no doubt ace.
–JT
My friend, my mentor, and one of our SSA teammates is in a bit of a squeeze. Per his last semi public update:
“I have a stage 2heartblock which causes me to blackout when I get dehydrated. happened Saturday morning on my way to play golf. I was taken to ER and given to IV drips. Was ok yesterday, but was in bad shape this am. So I’m currently at NYU Hospital being monitored.”
If that doesn’t scare the ever loving shit out of you to he point of action, you are a sick bastard.
While GTJ has some insurance $, anyone who knows how these things work knows damn well the $1,000′s accumulate extremely fast. I’m not asking for a Billion (we’d accept most of it though) but I want everyone who follows him on twitter, and reads his posts here and elsewhere to pray or do whatever you believe in that he’s healthy asap. We, no, I am not asking for any donations, but I will consider an offer if that is the way you want to play it.
My Friend, my Mentor, and again, My Friend is in an unenviable condition. Please do whatever you can to help.
Information @ StoneStreetAdvisors dot com.
I will match any donations as well as I can; any additional monies will go into a newly established charity which will be used for similar situations; zero will come to me or my firm.
Please wish him well, if you don’t have the money.
Jordan S. Terry
Founder & Managing Director
Stone Street Advisors LLC
A lot of people, finance professionals/academics and amateurs alike, will tell you that investing in penny stocks is inherently and necessarily risky, primarily by virtue of generally having small market capitalizations (e.g. below $100 million) and low stock price (e.g. below $5 in the U.S.) As I mention in all of my reports and articles on penny stocks, the lower the price, smaller the market cap, and lower the trading volume, the more susceptible the stock is to manipulation by unscrupulous types, typically using so-called “pump & dump” or “short & distort” schemes. Luckily, these risks can be minimized by using stop/limit (instead of market) orders along with proper position sizing relative to average volume to limit your downside risk and/or lock in profits. This, however, is not a column about trading (although that’s part of the process), it’s about fundamentals of business and investing, and that’s where I want to focus today.
So, now that we know how to (try to) minimize our risks on the trading side, how do we manage the risks associated with the underlying business? First, it depends on how one defines risk, or more accurately, what risks one is able to identify. Just because a penny stock is a small/micro-cap and/or development/transformation stage company doesn’t mean you can’t apply some of the same analytical techniques we use for larger companies to identify risks and determine if a given stock is worth your investment dollars. Interestingly, even the SEC has this to say about the risks of micro-cap stocks, emphasis mine:
“While all investments involve risk, microcap stocks are among the most risky. Many microcap companies tend to be new and have no proven track record. Some of these companies have no assets or operations. Others have products and services that are still in development or have yet to be tested in the market.”
This is a bit of an overgeneralization lacking nuance, but many penny stocks are fundamentally quite similar to the private early-stage companies that venture capitalists and angels invest in; The SEC’s comments could easily apply to both early-stage public and/or private endeavors. Harvard Business School senior lecturer Shikhar Ghosh has some very interesting stats and perspective on start-up/early-stage business failures. Barring outright fraud (more on this later), the reasons and frequency cited for business failure are probably not too much different for early-stage public firms than for private ones (not sure of data on this, but that’s the topic for another article).
So, how do we determine if it’s worth investing in a given penny stock? Generally, I prefer a primarily bottom-up approach with a healthy amount of deference to the top-down, regardless of market cap, and I think such a combination works especially well for penny stocks. Recently, a client hired us to research a volatile micro-cap penny stock, Nuvilex (NVLX) . I’m not going to get into too much detail about the specific project, but I want to use the company/research approach to illustrate how disciplined investors can separate the wheat from the chaff when it comes to penny stocks.
At first, I was skeptical of Nuvilex (not a surprise occurrence as I’m a skeptic first all the time); micro-cap stock, very volatile, very low price, barely any revenue, generally terrible financial statements, and a strange operating history spanning a decade and a half. The more research I did, though, I realized – again, barring outright fraud – the company’s technology has enormous potential. A simple Porter’s Five Forces analysis is always a good way to start, on any stock/company, again any market capitalization.
On a 1-10 scale I’d give Nuvilex a 7.5-8.5 on the five forces based on the public information I’ve reviewed. Regardless, this company, on a stand-alone basis, could change the way cancer, diabetes, and other horrible diseases are treated if not cured. Additionally, it’s a play on the inevitable paradigm shift in medical technologies coming from cell therapy and stem cell advancements. Bottom-up meets top-down; easy, right? Wrong!
Just because from 30,000 feet everything seems promising, we have to get a little closer to ground level, lest we miss something obvious like shady management, impossible financials, etc. I actually found it somewhat reassuring to see Nuvilex’s financial statements seem accurate compared to the story woven by management; many pump & dump, “fraudcap” (colloquialism for fraudulent or otherwise questionable micro-cap stocks) companies file SEC reports that make absolutely no sense given the market/industry and the idiosyncratic attributes of the company in question. Nuvilex’s tech has intellectual property protection, plenty of publications, accomplished leadership, and technology that could help extend if not save lives. When I was looking for competitors, I found one that explicitly disclaimed responsibility for all IP violations and said any issues were their customers’ problem. Amazing, no? Moving on…
The key takeaways here are 1. Don’t judge a book by its cover (or a stock by its price/market cap, 2. Most people don’t have a clue about investing (even some professionals), so beware word of mouth “advice,” 3. Always do your diligence and be on the lookout for shady #’s and characters; if it seems too good to be true, it probably is.
As always,
CAVEAT EMPTOR
Nuvilex (NVLX) is a company that I’d never heard of until about about a week ago when a client asked me to take a look. At first glance, my reaction was something along the lines of “why should I be bothered with a $0.05/share microcap transformational/developmental stage biotechy company with downright scary financials and a strange history?” After doing a ton of reading and research, I’m starting to realize why I – and you – should care about this company, regardless of it being a volatile microcap OTC penny stock.
While I’m sure I’m not nearly the 1st person to post this from the Oxford Private Equity Institute Conference on March 5th, I thought it an interesting read (especially if you’ve read him previously).
Perhaps the presentation is best summarized by the quote on page 2, to which the entire page is dedicated. I find this particularly disturbing:
You can read the full post here:129134638-Howard-Marks-Investing-in-Uncertain-Times
I’ve been negative on ZAGG since July, 2011 when the price was in the mid teens, so the stock is down somewhere around 45-50% since then (fair credit to Citron – who was more and more impatiently negative than I, Roddy Boyd, and others who were on top of this dog early). I’d like to posit a question (or a few): Would you rather own a company that relies on one, maybe 2 accessory products for maybe a handful of devices OR would you rather own a company that has demonstrated brand equity – bordering on being, dare I say, a lifestyle brand with a continually diversified, relevant product portfolio? What if the former had dozens of questions about management, governance, disclosure, business practices, (I could go on for a while), while the latter seems at least relatively squeaky clean?
Continue reading
Since I transitioned Stone Street Advisors from a financial blog to Stone Street Advisors LLC – providing research & analysis services for institutional investors and the like – I’ve shied away from getting into political debates. Once an issue becomes prevalent, the majority of people have their minds’ made up based upon limited information, usually fed to them through various forms of grossly over-simplified media “reports” or info (read: opinion) from friends/family. There is generally no use trying to sway the opinion of these people, it’s just an exercize in futility; there are no facts, figures, statistics, or well-researched/constructed arguments that can change their minds.
I’ve penned the first of what may be more articles on young gold mining company Pershing Gold (PGLC), a stock that while trading in the ~$0.40 range recently, could be trading at several times that in the next 1-3yrs.
You can read the full article at Seeking Alpha or on my Forbes column, “Fundamentally Speaking”
Please heed the disclosures attached to both, and as always:
CAVEAT EMPTOR
As many of you know, I’ve been saying JOSB has several – if not many – orange/red flags in its SEC filings, advertisements, and stores. This past weekend, I decided to pop into the JOSB store in Hoboken, NJ (right across the Hudson River from Manhattan for those not familiar with the area) to see if I could glean any information before the storm hit.
Almost two years ago I wrote a post, Lessons From Dad, Part I. I’m not very good at this sort of thing, I’m not Josh Brown or James Altucher or the other folks who are, but this is happening, and I think many of you may be able to relate.
I wear my heart on my sleeve and a massive, massive chip on my shoulder. My father has overcome adversity the likes of which I cannot imagine, but that was largely explained in Part I. I’m writing this to try to focus on my mistakes in dealing with Dad (and Mom, and Sister, and…you get the idea, though there is a limit for sure), especially recently. If you follow me on twitter, you’ve hopefully ignored these things, but I categorically refuse to delete them nor any tweet that doesn’t have a ridiculous typo messing it all to bits.
Now to the point, and why I hope you learn from my mistakes, and why I hope I learn from my mistakes; after all, it’d be pretty embarrassing to have the blog motto “those who fail to learn from history are doomed to repeat it” if I didn’t follow my own advice, no?
As I routinely warn investors, myopia is, for lack of a better phrase, a bitch, to put it as gently as possible. I’ve learned or been reminded recently that this applies to family relationships as well. This is not an unimportant distinction as it has many analogues to finance and our lives we so chose therein. My last post went into a bit of detail about what it is like when your family has nary a clue what you do all day besides stare at a screen (or several) all day. And heaven forbid you start your own firm, oye vey! My reaction since I did the latter has been to try to explain what I do to my family, to little, as far as I can tell avail.
But maybe I’m wrong. Maybe I haven’t explained it properly or accurately. Naturally I doubt this, but that is, I think, something endemic to alpha males particularly, and while I’m no Darwin, I don’t think you can deny heredity. I didn’t get (relatively) intellectually curious, scientifically oriented and become a decent musician by sheer luck (with the caveat that I’m not a Dr, again, I imagine this is also while I’m Steven Schwartzman’s height, too). I presume I also didn’t inherit my father’s – and I can’t spell this word to save my life despite being in the 98th% or something on my SAT verbal – sticktoitiveness – tenacity, stubbornness, and tendency to psychology repress many emotions. I’d talk about what I inherited from mom but that’s perhaps a post for another time. I love both of my parents, but as I approach 30 years, given my audience, Dad is now a better lesson, I think.
Dad taught me how to solder, about building electronic circuits, how to check mostly everything on a car, how to tie a necktie (although I’m better at it now, naturally), and so many other things. More importantly, he taught me not to be a total prick, even if avoiding so doing hurts me financially or otherwise; a rarity, I think, in a business that has rewarded so many so much for being exactly that. How some of those lessons happened is unimportant, but over the years, they happened, the most recent over the past month or so.
I was, I don’t know, bitter, that my father, while brilliant and perhaps the best Dentist in the U.S, never asked me, if memory serves correctly (it may not), for financial help (dare I say advice?) until it was too late. The details are, again, largely no one’s business outside the family, but bear with me.
You only get one mother and father. They brought you into the world and if you’re half lucky, your upbringing didn’t suck. I am still struggling with this, but I am pretty damn sure I would be endlessly depressed were one of my family members to cease to exist unexpectedly. Like if you have 100% of your money in 1 stock that turns into Enron, but so much worse. Inexplicably worse. 1,000,000 million million times worse, but infinitely worse than that.
Dad (and Mom) tried to explain all this sort of thing as I was growing up, but I have been known, particularly with family, to be difficult at times (see my heredity comment above). I’m still working it out or at least trying, imperfectly so, but the point is even if you’re a black-hearted asshole with an irrevocable trust fund, try to make it work with your family; they’re the only one you’ve got, and even if you’re a complete pragmatist, family stress due to stubbornness (etc) is going to make your professional life so much more difficult. Trust me. Been there, done that, and it is so horrible, just horrible; its not in your own best interest to be a bastard to them, however uncomfortable the dynamics can get.
As my Dad has said, I’ve a unique talent for shooting myself in the foot. Whether he is correct in his assessment matters not, his point is well made. While we may argue sometimes, he and my mother care about me, even if they have ways of expressing it that I don’t always understand or comprehend. I’ve spoken with a lot of people from various backgrounds, and this seems, in my experience, to be fairly universal, even if your parents are complete sociopaths (which mine are not, in case you’re still wondering).
I don’t know about you, but I never want to regret anything. Academically, professionally, personally, whatever. I certainly do not want to regret anything happening to a family that despite me being an ass sometimes, worked so hard to make me into a person they’d be proud of.